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Wrapping Up the Truth in Special Funds and Fees

posted in: Weekly Commentary 0
By Lowell L. Kalapa

One of the major contributions of the 1978 constitutional convention was the general fund expenditures ceiling which was viewed as a means of measuring the growth in the size of government. It basically said that government should not be allowed to grow any faster than the growth in the economy that must support it.

As a result, each year the governor, in submitting the administration’s proposal for the state budget, and the legislature, in approving the budget for the following one or two years, must declare whenever their proposals go over the constitutional ceiling. During the last years of the 1980’s and the first years of this decade, when the state treasury was awash in money, the legislature succumbed to temptation on a couple of occasions to exceed the state spending ceiling.

However, since that time, the slower growth in tax revenues has pretty much dictated the growth in general fund spending. However, note well that control in the growth of government spending by the slower revenue growth is general fund spending. This is because general fund spending is largely supported by tax revenues from the general excise tax and the net income tax.

To say that government spending has been brought under control would not be entirely honest. In fact, while the political rhetoric attempts to paint a picture that programs have been cut to the bone, a slight of hand has really pushed much of what used to be counted as general fund expenditures off the table and out of sight. Perhaps the most pernicious example of this strategy was the increasing of business registration fees by the department of commerce and consumer affairs several years ago.

This action was taken in the name of making those people who benefit directly from a service pay for that public service. And while that seemed to make sense, the level of increases, which by any standard of comparison were astronomical, did not make any sense. In fact, the rationale forwarded by department representatives made even less sense when they reported that the levels of fees being suggested were based on those charged by the state of New York for similar services.

The result is that a year after the new fee schedule was adopted, the state auditor found that those fees generated a $20 million surplus over and above what was needed to run that particular division. One would think that with that kind of surplus an effort would be made to adjust fees to avoid such a surplus. But that’s where government thinking and private sector thinking part company. After all, it was hard to get those fees raised, why should the department give up those hefty fees? Who cares that those hefty fees merely add to the cost of doing business in Hawaii?

In fact, the department has gone in the opposite direction with legislation adopted this year. It seems that having the auditor find that $20 million surplus was an embarrassment that could not be allowed to happen again. To hide the possibility of that ever happening again, the department will now have nearly all of its regulatory fees go into one fund, the compliance resolution fund. Thus, licensing fees paid by other professions, such as realtors, will go into the same fund as business registration fees.

Even $2.5 million of the bank franchise tax will be earmarked and deposited into the compliance resolution fund. Thus, business people won’t know if the fees they pay are paying for the monitoring of the real estate industry and the real estate sales people won’t know if they are paying for the cost of examining the books of the state’s banks.

What is more important is that many of these functions used to be paid out of the state general fund. These programs will now be classified as being paid for out of state special funds. So when politicians talk about cuts in general fund spending, they are not being quite so honest. Since all of these programs used to be paid out of the general fund, the continued operation of these programs should be considered in the growth of the size of government. It would be interesting to add all of these programs back to the general fund base and see just how large government has continued to grow.

Some may say this is a misguided assumption. After all, these programs are merely being paid for by the people who benefit from the services. That is really beside the point when one remembers that any moneys paid to government are that many less dollars which are available to businesses and their customers.

So while elected officials can preen their campaign feathers about all the tax cuts they adopted, will they be just as proud about all the new and increased fees they levied to keep government operating?

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